Measuring and Managing Customer Profitability
Author: Gary Cokins
||2 hours for CPAs
The only value a company will ever create for its shareholders and owners is the value that comes from its customers – current ones and new ones acquired in the future. To remain competitive, companies must determine how to retain customers longer, grow them into bigger customers, make them more profitable, serve them more efficiently, and target acquiring more profitable customers.
Customers increasingly view suppliers’ products and standard service lines as commodities. This means that suppliers must shift their actions toward differentiating their services, offers, discounts, and deals to different types of existing customers to retain and grow them. Further, they should concentrate their marketing and sales efforts on acquiring new customers who have traits comparable to those of their relatively more profitable customers.
As a result of this shift from being product-centric to customer centric there needs to be an increased emphasis on measuring current and future potential profitability of products, standard service-lines, channels, and customers. A mind-shift is needed from pursuing increased sales volume at any cost … to profitable sales volume.
Publication Date: April 2016
C-suite executives, Financial officers and controllers, Managerial and cost accountants, Financial and business analysts, Salesforce managers and sales persons, Strategic planners, Board of Directors and Marketing analysts.
- Determine how to retain, grow, create profitability and serve customers more efficiently
- Product-centric to customer-centric
- B2C industries
- CLV metrics
- Profitable sales volume
- Cost accounting
- Customer retention
- Which types of customers are worth more to retain, grow, acquire, or win-back?
- What types of customer are not worth pursuing?
- How much should you optimally spend on each type of customer micro-segment?
- How the internet is irreversibly shifting power from sellers to buyers.
- Recognize why customers are the source of shareholder wealth creation.
- Identify how to shift the mindset from growing sales to growing profitable sales and to view customers as investments like in a stock portfolio to seek higher ROIs — return on customers (ROC).
- Recognize why the marketing and sales functions need accounting data to better formulate customer account strategies including compensation incentives.
- Implement how to measure and manage product, channel, and customer profitability.
- Measure forward-looking customer lifetime value (CLV) differs from calculating historical customer / consumer profitability for B2C industries.
- Differentiate which items to use for the data base with Activity-Based Costing (ABC)
- Recognize how to utilize ABC rapid prototyping with iterative remodling
- Identify the proper approach to use to increase profits
- Recognize the shift to emphasize as a CFO wanting to increase customer value
- Evaluate customer value management to base investment decisions on
- Identify which model to use for base management decisions
- Recognize which effective managerial accounting type to use
- Describe how Activity-Based Costing (ABC) works
- Identify the most important part of applying ABC to a companies cost structure
- Recognize how to achieve world class ABC system design under ABC rapid prototyping
- Differentiate which cost to include as costs that are below the line of product costs when applying the principles of Activity-Based Profit Managment (ABPM)
- Identify which customers would be deemed the most unprofitable
- Recognize the approaches that would best enable you to optimize customer value and build shareholder wealth
- Differentiate your most valuable customer through assessing statistics
- Identify the three kingdoms of accounting and which would be considered the highest value-add form of analysis
- Recognize the method to apply for a company wanting to move from the realm of predictive accounting
NASBA Field of Study
Accounting (2 hours)